STOCK MARKET IN
PRESENTED BY : NITISH KAUSHIK
ROLL NO. : 776
BBA (HONS.) BUSINESS LAW(HONS.)
NATIONAL LAW UNIVERSITY, JODHPUR
What is STOCK
• A Stock Market is an organised place where stocks, bonds, or other
securities are bought and sold.
• It is the organization responsible for the operation of the stock market in Sri
• A company limited by guarantee, licensed by the Securities and Exchange
Commission of Sri Lanka (SEC) to operate as a stock exchange in Sri
• The SEC is the statutory body entrusted with the task of regulating the Securities Market
in Sri Lanka.
• For the purpose of carrying out its objects the SEC grants licences to the Stock
Exchange, Stock Brokers, Stock Dealers and Managing Companies of Unit Trusts as
well as register all Market Intermediaries i.e. investment managers, margin providers,
underwriters, credit rating agencies and clearing houses.
An introduction to the Colombo Stock Market: Sri Lanka
The stock market (or Stock Exchange) is a market where securities such as
shares, debentures etc. issued by companies are traded. Companies which use
the mechanism of the stock market to raise debt or equity capital, commonly
enter the stock market through issuing shares or debentures to the public.
Some companies issue new shares through an Initial Public Offering (IPO)
while others may opt to sell apportion of the existing share capital, known as an
Offer For Sale. In both instances, the investing public subscribes to the issue
directly by paying the value of the share to the company. There is another
method by which companies enter the stock market without issuing shares to
the public, which is known as an introduction.
Companies may also opt to issue debentures (explained later in this booklet)
through a debenture issue and issue debentures to the public through a public
offer. Once the shares or debentures are allocated to the investors who
subscribed, they become shareholders of that company respect of a share issue
and debenture holders in respect of a debenture issue. Thereafter these
shareholders or debenture holders are free to sell either part of in whole their
shares or debentures in the stock market
WHEN WAS A STOCK MARKET ESTABLISHED IN SRI LANKA?
Share trading in Sri Lanka dates back for a century, in 1896 when the
Colombo Stock Brokers Association(CSBA) commenced the trading of shares
in limited liability companies. Share training however, was formalized in 1985
with the establishment of the Colombo Stock Exchange (CSE).
COLOMBO STOCK EXCHANGE (CSE)?
The Colombo Stock Exchange (CSE) is the organization responsible for the
operation of the stock market in Sri Lanka. The (CSE) is a company limited by
guarantee established under the Companies Act No. 17 of 1982 and licensed by the
Securities and Exchange Commission of Sri Lanka (SEC) to operate as a Stock
Exchange in Sri Lanka. The Securities and Exchange Commission of Sri Lanka
(SEC) is the government regulator for the stock market in Sri Lanka.
The CSE has 15 member firms (stock broking firms). These member firms act as
market intermediaries performing a number of services to investors and
companies. All member firms are institutions, subject to the regulations of the
SEC, and have to obtain a license annually.
WHAT ARE THE SERVICES OFFERED BY MEMBER FIRMS (STOCKBROKERS)?
Shareholders or investors wishing to either buy or sell securities in the stock
market must register with one or more stockbroker companies. The relevant
transaction will be attended to by the stockbroker/s of your choice. It is therefore
mandatory that investors use a market intermediary to buy/sell shares or
debentures in companies listed in the stock market.
Stockbrokers provide a range of services such as the opening of securities
accounts in the Central Depository system (CDS), receiving and executing orders
to buy or sell securities, offer investment advice on suitable investments,
portfolio management, conducting and publishing research on companies,
attending to the settlement of transactions and attending to the necessary
documentation in respect of any transaction. In addition, stockbrokers also
provide services to companies such as sponsoring listing applications for
companies, underwriting share issues, advice and facilitating takeovers and
TRADED AT THE CSE
Current Financial Status
As of 26 June 2013, 287 companies are listed on the
CSE, representing twenty business sectors with a
market capitalization of 2.3 trillion rupees (over
US$18.5 billion), which corresponds to approximately
1/3 of the Gross Domestic Product of the country.
There are currently two indices in the CSE:
The All Share Price Index (ASPI)
The S&P Sri Lanka 20 Index (S&P SL20)
(Milanka Price Index - MPI was abolished after
Milanka Price Index
The Milanka Price Index is one of the
principal stock indices of the Colombo Stock
Exchange in Sri Lanka. It is composed of a
select group of 25 best performing stocks, a list
which is reviewed each quarter, as opposed to
the Colombo Stock Exchange's "All Share Price
Index", which uses all of the ~250 stocks on the
exchange to calculate an index value.
The CSE operates 3 main systems:
The Central Depository System (CDS)
Automated Trading System (ATS)
(After implementing ATS version-7, The Debt Securities Trading System (DEX) was
abolished since ATS-7 provides a platform for both Debt & Equity)
The automation of the Exchange commenced in 1991 with the installation of a central
depository and an electronic clearing and settlement system for share transactions. The
trading activity was automated with the installation of the Automated Trading System
(ATS) in 1997.
The technology introduced by the Exchange has significantly enhanced the
competitiveness of the CSE and has provided a more efficient and transparent market. The
CSE is currently in the process of introducing a debt securities trading system for trading
of fixed income securities.
As a modern exchange, the CSE now offers state-of-the-art technological infrastructure to
facilitate an "order-driven trading platform" for securities trading - including shares,
corporate debt securities and government debt securities.
At the double, equity market sets out its ambition
One of the most striking predictions made in a recent presentation by the
central bank of Sri Lanka is that the stock market is projected to grow to a
value of 70% of GDP when GDP reaches $100bn by 2016.
That is quite a statement, given that even after the explosive performance of Sri
Lankan equities in 2009 and 2010, the market capitalisation still amounted to
just $16.3bn as of October 2012. At the end of 2011, market capitalisation was
a modest 33.8% of GDP, down from 39.5% at the end of 2010.
The chances of doubling the size of the equity market in the next four years
also look ambitious in light of the chequered performance of some of Sri
Lanka’s recent IPOs. The largest of these, in November 2011, was the Rp7bn
sale of a 25% stake in
People’s Leasing, Sri Lanka’s biggest leasing company, which generated
demand of Rp9.5bn. By November 2012, however, the shares were trading at
Rp12.40, sharply down from the IPO price of Rp18 a share.
Suggestions For Further Growth In The Sri Lankan
Equity Market (CSE INITIATIVES)
A move to require more companies in the financial services sector to list on the
CSE. “For example. “there are 19 insurance companies in Sri Lanka, only seven of
which are listed on the CSE.”
Encouraging more companies to come to the market would help address the issue
of concentration in the Sri Lankan equity universe.
The largest listed company, the John Keells conglomerate, accounts for about 7%
of the entire market, while the top 50 companies contribute some 75% of total
Encouraging more listed companies to increase the size of their free float, which in
some instances is vanishingly small. Although the minimum initial
free float for companies on the main board is 25%, few companies maintain this
minimum, and in some very extreme cases the free float is as low as 1%. For the
market as a whole, the free float remains low by international standards, at
The CSE is also exploring a number of ways of attracting more
investment into the equity market by, for example, organising a
range of investor awareness programmes for private individuals,
fewer than 1% are active investors in equities.
Another recent initiative that the CSE hopes will create more
demand for equities among local and international investors is the
recent launch of the S&P Sri Lanka SL20 Index, which, says the
CSE, paves the way for index-based products such as Exchange
Traded Funds (ETFs).
Another positive signal for the market is that overseas investors,
who were hesitant about the Sri Lankan recovery story in the
immediate aftermath of 2009’s ceasefire, are now net buyers.
There are plenty of signals suggesting that
foreign investors are looking for
opportunities in the Sri Lankan stock
market, which now looks undervalued, on a
P/E ratio of below 15 as of October 2012,
which compares with 25 in 2010.
Institutional investors considering this
market as cheap and are looking to deploy
their funds in the stock market.